ASSET-BACKED SECURITY

Also known as abs, these are a type security or bond that is backed by financial assets like loans, leases, personal debt, credit card debt, the rights to a company´s accounts receivable or even royalties, but not real estate mortgages or other mortgage-backed securities.

When a financial institution sells abs, it uses loans bought from lenders (like banks) as collateral for the security or bond. The institution receives the loan payments and uses this income to pay back the interest earned and, upon maturity, the bond itself to the investor. Lenders sell their loans in this way in order to improve their financial situation and to make more loans